Want to pay less Tax?

It was quite boaring to read that “Big B had gifted a Bently car to Ab Jr” on his birthday.

Haven’t we had enough of all those non-news. Yes, but there is one small piece of advice hidden in that news – about saving tax.

According to latest Income tax laws, you can “GIFT” a portion of your earnings to near relatives other than your spouse. This gift can be utilized by your parents to invest in senior citizen oriented high yield fixed rate instruments or even play the roulette at the share markets.

Isnt it cool to pay 10% tax as they are already senior citizens rather than your hefty 33.3% bracket?. This is how wealth is created, multiplied and inherited!!

Cavet: Check with your chartered accountant regarding creation of a proper “gift deed” and dont forget to include that as part of your Income Tax returns.

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9 Responses to Want to pay less Tax?

  1. Prashanth M says:

    Mohan sir, few koshcans

    — Is it applicable to all earning individual – be it salaried or self-employed? One friend was saying that it is only for self-employed people
    — Whats the upper limit for this?
    — Say for example, I gift 50K to my parents or someone and I’ve a gift-deed. Then what will be the final tax to be paid – tax to be paid by me & tax to be paid by the one who got the gift?

  2. M O H A N says:

    πŸ™‚ Welcome prashanth sir,

    – In my limited knowledge its for a salaried professional. For business people there is such a big loop hole in the tax , i would need to write another blog for that – possibly a CA can help you out so efficiently – Govt will start paying taxes then πŸ™‚

    – Think the upper limit is between 50K- 70K as you rightly point out.

    – When you gift the 50K any way you have already paid tax whilest earning the same. From next year since you are NOT going to invest that in your name – your parents would invest and pay taxes appropriately based on their tax bracket.

  3. veenashiv says:

    This is unfair to the govt.. ! well … Its one’s choice at the EOD.

  4. M O H A N says:

    @veenashiv
    Absolutely its fair. How else do old aged parents live (dependents?) and normaly they dont have incomes of their own? Otherwise government will eat into their pie too and hence this rule.

    As long as you are paying all taxes regulary and filing returns you should be sleeping in peace as advertised by the department.

    You dont do any charity by ignoring this tax clause. There are many such tax clause which are not even known by many people ( For example there is a deduction for partial and full handicapped) if we go on saying its unfair it looses its context.

  5. Prasanna Sastry says:

    There is one more way if you dont want to even pay 7.1% tax. If you have Car, Register that in name of your Co. Ask your Co to pay Rs.x in the name of your Parents.

    THat is how we do it here. I have registered my Car in the name of my Co and my Co Deposits Rs.12K in the my Father ‘s a/c at Blr.

    This is as per the rules in the IT Rule Book provided your Co Agrees to take this effort.

  6. Prashanth M says:

    Thanks for the details Mohan πŸ™‚

    And I’ve another ques. – related to stocks. This may sound stupid, but this is what I heard –

    Buy shares of company X which has announced bonus shares. Buy it before the effective date – say 20 @ 100Rs/share. After the date – I’ll be having 40 shares – say @ 60Rs/share. Now I’m at a profit of 400rs. I’ll sell whatever 20 shares I bought for 60Rs/share – showing a loss of 800Rs. – can I show this in my form 16 as loss along with others?? and save some tax??

  7. M O H A N says:

    @prasanna
    Thanks for the info. Quite interesting and still legal.

    @Prashanth

    Obviously you can not club that in Form 16. Some companies hire consultants who charge some money based on these kinds of capital loss/gain.

    http://www.dnaindia.com/report.asp?NewsID=1008057
    This link address your issue very effectively. Didnt want to write another post and bore people πŸ™‚

  8. Veena says:

    I wonder…

    Why does people have problem if the same family own 3 BDA allotted sites (because they posses more senior citizens) even when they still live together in single home & rent out the rest ??
    It pinches more when you are at the other side of the table πŸ™‚ Uh..:-)

    I beg to differ at some place atleast.. Atleast I know I can’t challenge you for the business maths etc, at the end we need to remember there is a large line between something marked legal but not ethical…! The choice is yours.. 😦

  9. Every rule has an exception and you have listed one of it!

    If it were to be illegal would the Government have allowed it in the first place? Every practicing Chartered Accountant will suggest you this first to save tax. In fact our FM is a lawyer too πŸ™‚

    Off course the savings are minimal but satisfaction is great. Like people drinking beer and throwing away in singapore when no cop is around πŸ™‚

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